Pay Now, Accrue Later
- Trusha Desai
- Nov 19, 2018
- 1 min read
When cash outflow is not expensed entirely in the month of its occurrence, there could be various reasons. Insurance, dues and subscriptions, event planning for conferences, software. These are all instances of cash outflows that need to be divvied up over the months of the year.
This is due to the fact these are termed prepaid expenses or prepayments on the current asset section of the balance sheet. The reason these are "assets" is that the business has paid for these in advance, and therefore, will accrue benefit for this outflow at a later period, or for the remaining eleven months of the year.
It is extremely important that prepaid expenses are reconciled at year-end. For year-end reconciliation, please contact me #TrushaDesai.com